Result expectation: Lucky Cement is scheduled to announce its full year FY11 result on July 30, 2011. We expect the company to post a PAT of PKR3,988mn, up 27% YoY (EPS: PKR 12.33) with 4QFY11 PAT expected at PKR1,513mn, up 163% YoY (EPS: PKR4.69). Growth in profitability will come on account of improved EBITDA margins and increased local dispatches during FY11 due to strong growth in the south region. We also expect the company to declare final dividend of PKR5/share.
Higher margins to propel earnings growth: Catalyst for bottom-line growth during FY11 will likely be higher EBITDA margins. We expect EBITDA margins to show an increase of 35% YoY during FY11, along with a 29% QoQ increase during 4QFY11, both proliferating from higher retention prices coupled with pre-buying/inventory pile up of coal at USD 110/ton.
Strong local dispatches while exports to remain under pressure: We expect LUCK’s FY11 local dispatches to rise by 11% YoY to 3.45mn tons driven by stalwart growth in the southern region, whereas export offtake for LUCK is likely to have plunged by 33% YoY during FY11 to 2.36mn tons due to dismal demand from the GCC region.
Investment perspective: At the last closing price of PKR73.3/share, LUCK offers an upside of 23% to our Jun-12 price target of PKR90/share and trades at FY11/12 PER of 5.9x/5.4x. BUY!
Higher margins to propel earnings growth
Amid 12% YoY decline in total dispatches during FY11, impetus for bottom-line growth will likely be higher EBITDA margins. We expect EBITDA margins to show an increase of 35% YoY during FY11, along with a 29% QoQ increase during 4QFY11, both proliferating primarily from higher retention prices coupled with pre-buying/inventory pile up of coal at USD110/ton. However, EBITDA margins will increase by 135% YoY during 4QFY11, due to low base effect of 4QFY10. EBITDA margins for LUCK nose-dived post 1QFY10 and bottomed out in 4QFY10 at PKR 627/ton, following which they have been on a rising trend. Average retention for FY11 is expected at PKR 4,453/ton (up 20% YoY); due to increase in domestic cement prices, which shall offset 18% YoY increase in COGS/ton.
Strong local dispatches while exports to remain under pressure
We expect LUCK’s FY11 local dispatches to rise by 11% YoY to 3.45mn tons driven by stalwart growth in the south region. Dispatches in the south region were up by 20% YoY during FY11 as a result of uptick in post flood reconstruction efforts along with an increase in sub-urban development driven by higher farmer liquidity from a bumper crop season. Export offtake for LUCK is likely to have plunged by 33% YoY during FY11 to 2.36mn tons due to sluggish construction activities coupled oversupply of cement in the GCC region. However, cement demand from Africa and Afghanistan is likely to have mitigated the magnitude of decline from the GCC region. With limited avenues to explore on the export front, LUCK is likely to have focused more on local sales during FY11 due to higher retention prices in comparison to exports. We estimate local retention to have averaged PKR4,112/ton during FY11, whereas export retention, after adjusting for logistic charges is estimated at PKR3,553/ton.
Investment perspective
At the last closing price of PKR73.3/share, LUCK offers an upside of 23% to our Jun-12 price target of PKR90/share and trades at FY11/12 PER of 5.9x/5.4x. BUY!
Economic & Political News
Ogra fines 6 OMCs
The Oil and Gas Regulatory Authority (Ogra) has imposed fine worth PKR6.1mn on six Oil Marketing Companies (OMCs), which failed to keep 20-days fuel stock. Muhammad Ijaz Chaudhary, Secretary Ministry of Petroleum and Natural Resources. Giving the details of the Oil Marketing Companies, which were fined, he said that an amount of PKR2mn as a fine has been imposed on Admore, PKR1.5mn on Oscar, PKR1mn on Byco, PKR0.5mn on OTC, PKR0.3mn on Pak-Re and PKR0.8mn on Hascol.
Banks again miss agriculture credit target by PKR7bn
Commercial and specialised banks again missed indicative agriculture credit disbursement target of PKR270bon for the fiscal year 2010-11 by PKR7bn, mainly due to slow economic activity and floods in the country. Banks have been missing indicative agri credit target since fiscal year 2008-09 and this is third consecutive fiscal year where the commercial and specialised banks have not achieved the target set by the State Bank of Pakistan.
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